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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10103
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have S corp file taxes on cash basis have bee doing

Customer Question

i have S corp file taxes on cash basis have bee doing several yrs to adjust accrual to cash I do ths a.r beg add to ncome a/r ending deduct from ending A/P use the same forumla
Sch M reflects adj Is this correct way, I add beginning because deducted prev yr
Submitted: 9 months ago.
Category: Finance
Expert:  Lane replied 9 months ago.

Hi,

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That works IF your AP and AR are both at the same aging ...meaning if you're simply pulling, say, one month back and one month forward it works.

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But if your payable could go well into the next period and the receivables as well (especially if they are not of equal time periods - meaning takes say three months to collect receivables but you pay everything in one month - said differently, payment terms and payment experience varies) then you're not really converting back to what would have happened n a pure cash system

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Does that make sense?

Customer: replied 9 months ago.

i use A/R balance 12/31/14 and add to book income and deduct 12/31/15 balance from book income.

I use A/P balance for 12/31/14 and add to expense and I deduct

12/15 balance of A/P from expense.

I reconcile book to tax on Sch income. I have been using this method for yrs I do nothing with each mo balances

Thank you

Expert:  Lane replied 9 months ago.

That'll work! ... IRS uses what they call substance over form ... as long as you're doing this consistently they would allow this on any audit.

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I hope this has helped.

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Please let me know if you have any questions at all.

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If this HAS helped, I'd really appreciate a positive rating (using the rating request, faces, or stars on your screen)

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That's the only way I'll be credited for the work here.

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Thank you!

Lane

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, retirement plan, Social Security & Medicare, estate, corporate & tax advice since 1986